Crédit Mutuel AM: Subordinated debt
Did the stress over the trade war last only one month? This is what the financial markets seem to suggest, including the segments of subordinated debt, which have retraced all the losses experienced during the month, at least, in €-denominated instruments.
AT1 CoCos thus recorded a flat performance of -0.03% over the month, after falling by 3.8% in the space of a week, while $-denominated AT1s fell by 0.5% over the same period. Corporate Hybrids appreciated by 0.5% over the month, while insurance subordinated debt benefited from the rally in European sovereign yields, delivering a +0.8% monthly performance.
It should be noted that credit spreads did not return to their original levels. For example, €- denominated AT1 started April at 341 bps of OAS to Treasury, and widened to 449 bps on 9 April, before ending the month at 379 bps. The Other segments of subordinated debt denominated in EUR experienced a widening of around 20 bps over the month, showing a rapid retracement from their peak.
Liquidity in the secondary market deteriorated slightly at times, especially during the most negative sessions. However, the trend reversed in the second half of the month, as counterparties struggled to offer paper with investors showing a preference to hold onto their securities. The primary market logically remained sluggish during the stress period, and no perpetual bonds were issued in Europe during the month, which contributed to this scarcity of paper.
The Q1 2025 earnings season began, with stable credit trends in Europe for banks and insurance companies, which revealed very satisfactory results overall, whether in terms of profitability, balance sheet strength or solvency.
M&A activity remains busy in Italy. While Generali managed to withstand a shareholder rebellion aimed at ousting management, calm did not immediately return. Mediobanca, which holds 13% of Generali, proposed to exchange its stake in return for the acquisition of its banking subsidiary, Banca Generali. Mediobanca’s move is considered defensive, while the bank is struggling against a hostile takeover by Banca Monte dei Paschi di Siena. Meanwhile, UniCredit may be forced to abandon its takeover bid for Banco BPM given the drastic conditions dictated by the Italian government to authorize the takeover.
